Doctors Hospital of Michigan is still open for business and expected to emerge from bankruptcy under new ownership — and it's newly renamed to an old name: Pontiac General Hospital.

"We never closed," said CEO John Ponczocha, "but some people thought so because of the bankruptcy."

Unable to turn a profit and piling up red ink that totaled more than $73 million from 2009 to 2014, a small group of physician-owners of the hospital, legally known as Oakland Physicians Medical Center LLC, led by board chairman and psychiatrist Yatinder Singhal, M.D., last July filed for bankruptcy protection under Chapter 11.

The bankruptcy case is still underway with more than 700 creditors seeking millions in dollars of unpaid bills against the former physician-owners, according to Bloomfield Hills-based Simon PLC. Unsecured creditors are expected to recover $1.6 million over four years out of the $13.2 million they claimed, court records show.

But last month, U.S. Bankruptcy Court Judge Walter Shapero approved a reorganization plan by Sant Partners LLC over two competing groups, Save the Hospital Group and Allied Global Consulting.

Founded last summer by Sanyam Sharma, who is executive vice president of Infrahealth Group, an Austin, Texas-based health care administrative services firm, Sant Partners was created for the sole purpose of making a 35 percent investment in the hospital and helping turn it around.

An undisclosed amount of seed funding for Sant Partners came from Sanyam's parents, Sanjay and Priyam, who own and operate Infrahealth and St. Martinus University, a medical school on the island of Curaçao.

"We heard about the hospital through (a consultant) last March," said Sanyam, Sant's managing director and founder. "We approached them about placing medical students (from St. Martinus) for clerkships. They called back in July and asked for help. They needed us to take a minority stake and our consulting services." (See Jay Greene's blog for more about Sanyam Sharma and his family.)

Sanjay Sharma, now the hospital's chief information officer and president of the medical school, came to Pontiac first to evaluate the hospital's information technology services. He discovered major problems with the revenue cycle software that had led to a backlog of about $24 million in uncollectible bills.

"We have significantly improved our systems and have an 80 percent collection rate (of current bills)," Sanjay said. "We will collect about $4 million this year in commercial insurance payments."

Sanyam said Infrahealth invested $1.5 million to keep the hospital open. But "it wasn't long before the hospital filed for bankruptcy. That made everything more complicated," he said.

At that point, Sanyam said, the Sharma family decided to go all in, buy the hospital and propose a reorganization plan.

Larry Peplin

Sanyam Sharma (center) is leading the effort to revive Pontiac General Hospital, with key help from his parents, Sanjay (left) and Priyam.

"We have Infrahealth and the medical school," said Sanyam of the family's investments. "But if we want to really increase our revenue and business, we needed to buy a provider. That's why we identified this project."

Under the court-approved reorganization plan, Sant would take over the hospital by essentially writing off its earlier $1.5 million loan and assuming the hospital's liabilities and $13 million in debt.

Officially, the Sharmas won't take ownership until the closing in mid-April. Currently, Sant is considered by the court as the debtor-in-possession, or DIP, lender and consultant.

But under the new leadership team, which includes bankruptcy trustee Basil Simon, patient-care advocate Aldo Martinez, Ponczocha and the Sharma family, Pontiac General Hospital is slowly being reborn.

"Sant Partners has expertise and will be able to return the hospital to profitability by instituting good management practices and by expanding its medical staff," said Todd Sable, a partner with Detroit-based Honigman Miller Schwartz and Cohn, who is representing Sant.

Priyam Sharma, who will become one of the hospital's four board members with son Sanyam after the closing, said the family has held several town hall meetings for employees and the community.

The two other board members will be physicians Jawad Shah and Surindar Jolly. Shah, a neurosurgeon who has taken out an $8 million line of credit and plans to invest $375,000 in the hospital, is its chief medical officer. Jolly is a neurologist and investor with up to $500,000 committed.

"We have met with 90 percent of the employees personally, from the boiler room to the kitchen," Priyam said. "I am impressed by the passion of the people who work here and live in the neighborhood."

Priyam said employees have expressed concern there could be further layoffs. The hospital workforce has shrunk over the past decade to about 240 workers from more than 800.

"We are a family business and don't want to make layoffs like in the past," Priyam said. "We have been shifting people around based on their skills. We stress customer service and quality."

Pontiac General is licensed for 306 beds, but only about 30 of the licensed beds are staffed in a medical-surgical unit that ranges occupancy from 25 percent to 50 percent. It also operates a 30-bed adult psychiatric unit that averages more than a 90 percent occupancy rate.

Its main sources of revenue, said Ponczocha, are the adult psychiatric unit, the medical-surgical unit, a primary care health center managed by Oakland Integrated Healthcare Network, an 18-resident family medicine program sponsored by the hospital, outpatient surgery and a 24-hour urgent-care center.

But those revenue sources did not come close to bringing the hospital out of the red.

"Over time and for various reasons, including claimed mismanagement, it came to pass that debtor's facilities and medical services became substantially underutilized and noncompetitive, its finances became severely distressed, and its books and records in disorder," wrote Shapero.

For example, in 2014 the former Doctors' Hospital lost $12.7 million on net patient revenue of $12.6 million, according to Louisville, Ky.-based Cost Report Data. From 2009 to 2013, the hospital lost more than $73 million.

Sources told Crain's that multiple factors led to financial losses. They included competition from two larger, multi-system owned hospitals and a poor economy in the Pontiac area.

Other problems included a shift away from inpatient care to outpatient services that reduced revenue, lack of medical staff recruiting and an erosion of the physician base that led to fewer patients and a dysfunctional board-management relationship over multiple administrations.

"The previous owners kept shutting down services to cut expenses," Sanyam said. "Over time, that affected medical-surgical volume, radiology, cardiology and general surgery. There were fewer patients left to admit, and the losses were predictable."

Flint-based McLaren Healthcare Corp. was one of the original investors when the hospital initially emerged from bankruptcy in 2008. For nearly three years, McLaren's management tried to improve operations, nearly breaking even in 2009 with a $1 million loss.

But McLaren, unable to reach agreement with the board on a long-term financial strategy, sold its 35 percent investment in early 2011 for $3 million, taking a $2 million loss.

Yusuf Hai, managing director of business advisory services with CIG Capital Advisors in Southfield, said exterior economic forces and lack of synergy caused the hospital to fail over the years.

"You had doctors on the board who tried to do everything — manage and practice medicine — and it didn't work out great," Hai said.

Hai said the Sharma family has a good opportunity to turn around the hospital if they put in place the right service mix to fill a primary care and specialty market niche.

"If the (Sant) group does a good job, someone will come and pick them up" and acquire the hospital, Hai said.

Sanyam said his family has no plans to sell the hospital. "We have gotten offers, but nothing we will take at the moment," he said. "We plan to grow the company and hold onto it at this point."

Chad Grant, CEO of McLaren Oakland in Pontiac, said the new Pontiac General could succeed if it focuses on primary care.

"Health care is a very competitive environment with all the pressures on organizations," Grant said. "It is very difficult to be successful without appropriate scale."

Grant said he has met with the Sharma family and understands they want to expand inpatient medical-surgical services. "It will be difficult because services are moving more into the outpatient area," he said.

Like Pontiac General, Grant said, McLaren Oakland also offers the community adult behavioral health services."Behavioral health is an unmet need in Pontiac, but reimbursement is not attractive," he said. "We provide behavioral health services with a geriatric inpatient unit for ages 50 and above."

Grant said McLaren Oakland makes a little money on its 27-bed unit that averages 20 patients per day. "It isn't a huge revenue generator," he said.

Overall, Pontiac's economy is growing stronger with several larger employers expanding workforces and that should help all hospitals, Grant said.

"We have significantly improved our financial performance" over the last several years, said Grant, noting that of the hospital's 150 staffed beds, its average census is about 100 patients, or 67 percent.

"Our partnership with Karmanos (Cancer Institute) has brought us admissions, and our new ER center in Clarkston has also brought us inpatient volume," said Grant, noting that insurance expansion under the Affordable Care Act has helped improve cash flow by reducing charity care.

But one of the problems Pontiac General is facing is various paybacks owed to Medicare and Medicaid programs, Sanyam said.

"Medicare says we owe them $6.7 million. They are recouping 100 percent (of our billing and graduate medical education program)," he said. "If there are no changes, we will pay it off in two years."

But Sanyam said the hospital has presented Medicare with a five-year payment plan, which, if approved, will free up cash for operations.

"It would be a substantial improvement" in revenue to the hospital, said Simon, the bankruptcy trustee who is a partner at Simon Stella and Zingas PC in Detroit. "We hope some money will get released."

The Michigan Medicaid program also has been recovering overpayments. "We owed them $3 million and still owe $500,000," Sanyam said. "We are working with (state officials) to (forgive) that debt."

Simon, who calls himself the "lame-duck trustee," meets weekly with Ponczocha and others to approve bills and review revenue and expenses.

"Cash flow is improving and things are gradually getting better," said Simon, who noted that the Sharmas, as DIP lender, must supplement hospital revenue to keep the hospital solvent while under bankruptcy protection.